US GDP growth misses expectations and puts pressure on the Fed to loosen monetary policy

Consumer spending rose at a slower rate than the third quarter (Source: Getty)

US economic growth missed expectations in the fourth quarter, reinforcing fears that the Federal Reserve was too hasty last month when it raised rates for the first time in almost a decade.

Gross domestic product (GDP) rose by 0.7 per cent during the last three months of the year, the US Department of Commerce said today, a market decline from two per cent GDP growth in the third quarter.

The US economy saw steady growth for most of last year, but low oil prices and a strong dollar – combined with poor growth in other parts of the world – created a dichotomy that led some critics to argue that the central bank was too quick to raise rates last month.

The Fed acknowledged earlier this week that growth “slowed late last year”, but added that “labour market conditions improved”.

Russ Mould, investment director at online investment platform AJ Bell, said: “The US economy has disappointed with an annualised growth rate of 0.7 per cent for the final three months of 2015, raising further concerns over both Federal Reserve monetary policy and the lack of momentum in the world’s biggest economy.

“The Atlanta Fed’s GDP Now website shows how consensus began the period looking for growth of more than 2.5 per cent, so today’s figure has even undershot downgraded estimates – although it will be subject to two further revisions.

“Such a modest figure will raise further questions as to why the US Federal Reserve chose to raise interest rates in December, other than an understandable desire to try and return monetary policy to more normal conditions.

“The Fed’s next test will come with its meeting on 15-16 March especially as stock markets are starting to bray for looser policy, not tighter, as evidenced by Japan’s decision to cut interest rates into negative territory.“